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September 4, 2018 • Stay Connected!

QUESTION:  Buyer had a financing contingency and deposited $20,000 in earnest money. A month later, buyer’s broker submitted a termination based on loss of financing due to buyer getting laid off (Form 90I). Knowing that the financing contingency requires buyer to submit a letter from buyer’s lender showing date of loan application, copy of loan estimate, reason for denial, and that buyer had sufficient funds to close – I asked the buyer’s broker to get this supporting documentation. Weeks later, buyer’s broker forwarded a form from lender stating only that buyer’s application was denied due to being unable to verify employment. Again, I asked for the date of application and a copy of the loan estimate. Buyer’s broker never responded. A month later, buyer’s broker sends an email to us and the closer demanding release of earnest money to the buyer. What are sellers next steps and how long do we have to wait for buyer to provide the required documentation before it’s official that buyer did NOT provide this information and therefore cannot use the financing contingency as a reason to get earnest money back?

ANSWER:   Broker should advise seller, in writing, to seek legal counsel. Buyer's demand for the EM is likely to result in escrow (assuming escrow is holding the EM) sending a notice to seller that buyer is demanding the EM. Seller must timely object to escrow releasing the EM or state law will allow escrow to release the funds to buyer and eliminate any claim by seller against escrow.
Broker is correct that Form 22A, buyer's financing contingency, is very clear about what buyer must provide in order to recover the EM. It should be remembered that Form 22A is BUYER'S Financing Contingency. Buyer included these terms in the PSA. Buyer promised that if seller would give buyer a financing contingency, buyer would provide seller with a paragraph 5 letter to show buyer's good faith effort to obtain financing in the event buyer failed to secure financing. The financing contingency, and all of its terms, were not seller's idea. They belonged exclusively to buyer and buyer persuaded seller to sell to buyer, using a financing contingency, by making all the promises set forth in Form 22A.
This buyer is now trying to ignore buyer's promise to: 1) make timely loan application; 2) use good faith in obtaining financing; and 3) provide requisite proof of buyer's efforts in these regards prior to claiming recovery of the EM.
Seller is likely to have a strong claim to the EM based on all the facts presented but there are never any guarantees in litigation and there is no way to predict, with certainty, how any dispute will be resolved. Since broker is not licensed or insured to give seller legal counsel, including assistance in determining seller's rights and obligations under this contract, broker should advise seller, in writing, to seek legal counsel.
Additionally, since the financing contingency "survives" termination of the PSA, there is no time limit as to when buyer must provide the required lender letter other than a time limit imposed by litigation. These parties are likely headed to an interpleader lawsuit where a court will determine ownership of the EM.



The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to . Please tell us your NRDS number when you e-mail the Hotline with your question.


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Primary Mortgage Rates Survey
(updated every Thursday)  Source:  Freddie Mac
 August 30, 2018       30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.52%  3.97%  3.85%
 Fees & Points  0.5
 Margin  N/A  N/A  2.77

 August 23, 2018       30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.51%  3.98%  3.82%
 Fees & Points  0.5
 Margin  N/A  N/A  2.75

 August 16, 2018       30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.53%  4.01%  3.87%
 Fees & Points  0.5
 Margin  N/A  N/A  2.75

 August 9, 2018       30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.59%  4.05%  3.90%
 Fees & Points  0.5
 Margin  N/A  N/A  2.76

 August 2, 2018       30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  4.60%  4.08%  3.93%
 Fees & Points  0.4
 Margin  N/A  N/A  2.76

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Washington REALTORS® will host COE Webinars starting in August to assist members with completing the mandatory training. Don't wait until the last minute, though! These webinars are capped and they fill up fast...